Slightly lower mortgage rates and higher home affordability were the only positive housing market drivers last month. Mortgage rates may improve slightly more in the next few months but due to a weakening economy rather than cuts by the FRB in federal funds rates. Together with rising personal income, lower mortgage rates boosted home affordability to a level consistent with a much higher level of home starts and sales. This will not persist. Aggregate personal income growth will stall with more layoffs and smaller wage gains.

The decline in the Consumer Confidence Index from 87.3 to 75.0 overwhelms the improved home affordability. This will dominate the housing economic environment for at least a few more months.

Note that the drivers for residential remodeling have turned clearly negative. The is consistent with recent downward spending revisions in remodeling by the Census Bureau.

Key Indicators of the U.S. Market Environment — February 2008 Residential Construction (New and Remodeling)
	Year Ago	Previous Month or Qtr.	Latest		Level	Recent Trend	Impact on Const.
New Residential
Affordability — 30-Year mortgage index (NAR)	115.9	122.7	Jan	130	High	Rising
Affordability — 1-Year ARM mortgage index (NAR)	117.0	126.8	Jan	133.1	High	Rising
Consumer income growth, % change y/y (U.S. Commerce Dept.)	7.3	4.1	Jan	4.0	High	Steady
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	5.7	-0.3	Jan	-1.2	Low	Falling
Employment change, 000s (U.S. Labor Dept.)	25	-22	Feb	-63	Low	Falling
Household net worth, % change y/y (FRB)	8.6	8.1	Q3	7.3	Avg	Falling
30-Year fixed mortgage rate, % level (Freddie Mac)	6.16	6.24	W/E Mar 6th	6.03	Low	Falling
1-Year ARM mortgage rate, % level (Freddie Mac)	5.44	5.11	W/E Mar 6th	4.94	Low	Falling
Consumer confidence index (The Conference Board)	111.2	87.3	Feb	75	Low	Falling
Housing market index (NAHB)	39	19	Feb	20	Low	Steady
Homes under construction, 000s (U.S. Census Bureau)	1216	1062	Jan	1037	Low	Falling
New home inventory, number-of-months supply (U.S. Census Bureau)	7.2	9.5	Jan	9.9	High	Rising
Existing home inventory, number-of-months supply (NAR)	6.6	9.6	Jan	10.3	High	Rising
Residential Remodeling
Existing home sales, 000s (NAR)	6,380	4,910	Jan	4,890	Low	Falling
Building supply store sales, seasonally adj. $ millions (U.S. Census Bureau)	29,143	28,510	Feb	28,321	Avg	Falling
Wood product shipments, seasonally adj. $ millions (U.S. Census Bureau)	8,782	7,661	Jan	7,556	Low	Falling
Remodeling contractor hours worked, % change y/y (U.S. Labor Dept.)	2.7	-7.2	Jan	-4.6	Low	Falling
Mortgage refinancing applications, index (Mortgage Banking Association)	1,584	2,569	W/E Mar 7th	2,448	Avg	Steady
Abbreviations: y/y = year over year; WE = week ending; ARM = adjustable-rate mortgage; NAR = National Association of Realtors; FRB = Federal Reserve Board; NAHB = National Association of Home Builders. Table: Reed Construction Data and Reed Construction Data - CanaData.

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